What is a Living Trust?

A “Living Trust,” also known as a “Revocable Living Trust,” is a legal entity created by the execution of a written trust agreement. After you create a Living Trust, you transfer the ownership of your assets to, or “fund,” the Living Trust. The Living Trust is created for your benefit during your lifetime, and it enables you to pass property to family, friends, and/or loved ones after your death. To many, the Living Trust looks a lot like a Will. It includes the details and instructions for how you want your estate to be handled at your death. However, unlike a Will, a properly funded Trust avoids the costly and time consuming need for a probate.

Will I Lose Control of my Assets?

No! A Living Trust will allow you to retain full control over your assets. A Living Trust also allows you to appoint someone (a Successor Trustee) to make certain your property goes to your chosen beneficiaries after your death.

I Thought a Will Avoids Probate?

Many individuals are under the (mistaken) impression that a Will alone is sufficient to avoid probate. Unfortunately, a Will is simply an expression of your wishes and must go through a formal court procedure (probate) before someone can be appointed by the court to manage your estate and before assets can be distributed to your beneficiaries.

How Does a Living Trust Work?

For a trust to be effective, your assets need to be in the Trust. This is done by transferring the name on your assets to your Living Trust. For example, you would change the title on your assets from “Bill and Mary Stevens” to “Bill and Mary Stevens, Trustees of the Stevens Family Trust.”

When your assets are titled in the name of your Living Trust, there will be no need for probate, since after your death, your assets will be controlled by the Successor Trustee of your Living Trust, who will then have full authority to manage all of your assets in accordance with your wishes, as made known in the trust document. Remember, you can decide who will manage your affairs, and where your assets will go.

Who is Involved in my Living Trust?

To better understand the Living Trust, we think it is important to explain the different roles of the people who will be involved:

Grantor:

This is the person who sets up the trust. The Grantor is also known as the “Settlor” or the “Trustor.” As the Grantor, you have full control to manage or change the Trust at any time.

Trustee:

The Trustee is the person who will manage the assets in your Trust. Again, this will most likely be you while you are alive. When a Trust is created, the Trustees are usually the same individuals as the Grantor. For married couples, the husband and wife will usually both act as Co-Trustees. Of course, you do not have to be the Trustee if you do not want to or feel you are not able to. You can name a child, a friend or even an institution to manage your affairs for you.

Successor Trustee:

This is the person (or institution) who will manage your assets for you when you die or if you should become incapacitated. The Successor Trustee will have the right to manage your affairs without the need for appointment by a Probate Court. The Successor Trustee will immediately have the same powers that you as Grantor/Trustee had to buy, sell, borrow or transfer the assets inside the Trust. More importantly, the Successor Trustee has the right to distribute the Trust’s assets according to your instructions in the Trust. This immediate control can allow your estate to be transferred to your children or loved ones right away, avoiding the time delay of probate, which can usually consume anywhere from six months to two years.

Fortunately for you and for the protection of your heirs, the Successor Trustee does not have the legal right to change your Trust. Unless you specify otherwise, the Trust becomes irrevocable, or unchangeable, after the death of the Grantor(s). The Successor Trustee will have the right to manage the assets in the Trust, but must do so solely for the benefit of the beneficiaries. You can choose to have one or more individuals or institutions serve as Successor Trustee(s).

Beneficiaries:

The people who will receive the benefit of the Trust’s assets are called the beneficiaries. For a husband and wife, typically the assets will remain in trust for the surviving spouse. If there is no surviving spouse, assets will pass to the people you have named in your Trust. You are not limited to who you want to receive the assets in your Trust. You can name your children, relatives, friends, or charitable organizations to be your beneficiaries.

What Happens When I Die?

After you pass away, your Successor Trustee or Co-Trustee will have the same responsibilities as an Executor would have if you appointed by the Court. However, since your Successor Trustee does not have to report to a Court, things can be done more efficiently and privately.

Advantages to Using a Revocable Living Trust

Avoid probate

Maintain control over management and distribution of your assets

Provide and manage assets for minor children

Easier for your beneficiaries

Keeps your estate plan private

If an illness or accident leaves you incapacitated, your Successor Trustee can handle your financial affairs without the need for conservatorship proceedings

If you own real property in more than one state, you can avoid the expense, time and hassle of multiple probate proceedings.

Common Questions and Answers About a Living Trust

Q: What exactly is a Revocable Living Trust?

It is a separate legal entity set up to care for and manage property or funds for you or for the benefit of another.

Q: Will a Living Trust protect my estate if I have to go to a nursing home?

No. Many people think that putting their assets into a Revocable Living Trust would help them qualify for Medicaid, because the assets would no longer be titled in their name. However, because a Living Trust is revocable and under your complete control, you have not “given anything away.”

Q: If I set up a Trust, is a Will also required?

Yes. A Will, also called a “pour over” Will, is drafted in conjunction with your Trust. If you fail to transfer all your assets into the Trust, the Will picks up those assets at the time of your death and transfers them into your Trust for distribution. However, assets “poured into” your Trust by the Will must generally go through the probate process first. If you have minor children, nominations for guardians are also made in the Will.

Q: Will my property taxes increase if I transfer my real estate into a trust?

No. California law creates a special exemption for property placed into a Trust for the benefit of the Grantor.

Q: Does my tax status change when I create a Revocable Living Trust?

No. Any income generated by assets in your Living Trust is taxed as if it was still held in your name and reported on your personal 1040 form. No special taxpayer identification number and no special tax forms are required.

Q: Can I borrow against the assets in the trust?

Yes. The trust does not restrict your rights to borrow on assets in any way.

Q: What rights does the surviving spouse have in the Trust’s assets?

For a trust created jointly by a husband and wife, if the surviving spouse is the successor Trustee, he or she will have unlimited rights to buy, sell and transfer assets.

Q: Doesn’t joint tenancy always avoid probate?

Joint tenancy does not avoid probate upon the death of the last owner. For instance, if you and your spouse own your house as joint tenants and you die, the house passes to your spouse free of probate. However, when your spouse dies, or if you and your spouse die simultaneously, the property will be subject to probate because there is no surviving joint tenant. Had the house been placed in a Living Trust, there would not be no need for a probate at either death.

Q: Who manages the Trust?

Usually you name yourself to be the person who manages the Trust – the Trustee. However, you could also name a friend, a child who is not a minor, or a corporate entity, such as a bank to serve as Trustee.

Q: Are Living Trusts valid in all 50 states?

Yes. A Living Trust is valid in all states and in most foreign countries.

Q: Will I have to rewrite my Trust if my personal circumstances change?

You can change (amend) your Trust as often as you wish. Oftentimes we suggest that after two or three changes (amendments), you “amend the Trust in its entirety,” incorporating all of your changes into one document.

Q: How does the Trust end?

A Living Trust is terminated when all of the assets have been distributed, or it may be revoked by the Grantor(s) at any time.

Q: Will a Living Trust protect me against my creditors?

No. A Living Trust does not insulate your assets from the legitimate claims of creditors.

Q: Can I appoint a minor child as a Successor Trustee?

No. A child must be at least eighteen years of age in order to act as a Successor Trustee.

Q: What is the difference between a “revocable” and an “irrevocable” trust?

A revocable trust can be amended or revoked at any time up until a designated event occurs, such as the death of the Grantor. An irrevocable trust cannot be amended or revoked after it has been created.

Q: Can assets be added to the Living Trust after it is signed?

Yes. Just remember to take title to any assets purchased after the execution of your Trust in the name of your Trust, e.g., “John and Mary Smith, Trustees of the Smith Family Trust.”